Question

Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life’s balance sheet: Common stock (1,000,000 shares authorized; 500,000 shares issued), $4 par, $2,000,000; Paid-in capital in excess of par—common stock, $900,000; and Retained earnings, $33,875,000. The board of directors declared a 3% stock dividend when the market price of the stock was $14 a share. Healthy Life reported no income or loss for the current year.

Required:

	a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates. Refer to the Chart of Accounts for exact wording of account titles.
	b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
	c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.

Answer 1

Answer a
Journal entries
Transaction	Account Titles	Debit	Credit
a-1	Retained Earnings	$210,000.00
	Stock Dividend Distributable		$210,000.00
a-2	Stock Dividend Distributable	$210,000.00
	Common Stock		$60,000.00
	Paid-in capital in excess of par—common stock		$150,000.00
Working
Shares issued under stock dividend = 500000 shares x 3% = 15000 shares
Answer b
Total Paid in capital before the stock dividend was declared
Common stock (1,000,000 shares authorized; 500,000 shares issued), $4 par			$2,000,000
Paid-in capital in excess of par—common stock,			$900,000
Total Paid in capital before the stock dividend was declared			$2,900,000
Total Retained Earnings before the stock dividend was declared			$33,875,000
Total Stockholders Equity before the stock dividend was declared			$36,775,000
Answer c
Total Paid in capital after the stock dividend was declared and closing entries were recorded at the end of the year
Common stock (1,000,000 shares authorized; 515,000 shares issued), $4 par			$2,060,000
Paid-in capital in excess of par—common stock,			$1,050,000
Total Paid in capital after the stock dividend was declared and closing entries were recorded at the end of the year			$3,110,000
Total Retained Earnings after the stock dividend was declared and closing entries were recorded at the end of the year
Total Retained Earnings before the stock dividend was declared			$33,875,000
Less : Stock dividend declared			$210,000
Total Retained Earnings after the stock dividend was declared and closing entries were recorded at the end of the year			$33,665,000
Total Stockholders Equity after the stock dividend was declared and closing entries were recorded at the end of the year			$36,775,000